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Embed code for: Contract Selection by Sony Joel Bagaoisan
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Sony Joel Bagaoisan
Contracting and Procurement in Project Management
October 20, 2014
What strategy will you use to procure this product or service?
Scenario: A project manager decided to purchase scheduling tools to change the software for ACME Development Corporation. Hiring technicians, training for 60 days, and disposal of hardware and installing new software.
Planning for outside contractors
Google all possible list of contractors that fits to your needs
Contact 3 contractors by phone or e-mail them for request for proposal and then request for invitation
Explain well defined statement of work (SOW)
What type of contract to use?
Firm fixed price contract is a fixed price of the project given by the customer which vendor and owner are set in a amount, but when if there is unexpected cost will suddenly add the fees.
Fixed price with target is the amount of the whole project and uses of fixed-price incentive firm target contract (FPIC), this is the negotiated estimated cost.
Fixed price at cost is a contract that involves payments(cost reimbursable) to the seller for legitimate actual cost of completed work.
Time & Materials is a combination of the type of contract arrangement that contains aspect of both cost reimbursable and fixed price contract. This arrangement presents the highest risk for the owner and the most secure way for the contractor.
Simple steps for contracting
According to Campbell (2014) it all starts here, the project manager initiates contract and create pertinent documents. These are the following:
Get written estimates for your project at least their services, materials, and equipment's. Ask for formal request for proposal to attract potential contractors. Offered them a detailed specification of the project.
Explain, demonstrate and document your requirements for equipment, materials and supplies for the estimates or request of proposal. RFP contains this questions:
What is the vendors understanding the project need?
What is the overall or life cycles ?
What are the technical capabilities to the job?
What is your management styles? How you will use to secure success?
What is your condition to your project?
Simple steps for contracting continuation:
Read single proposal and sit down with project team and develop selection areas. Develop weighting system and take the priorities into account. Develop a minimum standard to the final vendor.
Make sure the vendor know acceptance and performance section will be inserted in the final order of goods and services.
Ask for final proposal from the vendors and you should interested only on how they work for you.
Check references, compare estimates, and use the estimate from the most likely choice of vendors for the rest of planning purposes.
Hold a bidder conference to allow you to meet everyone. This will allow you to ask detailed questions prior to submitting the proposal.
Provide each vendor who submitted a bid the courtesy of a reply. Discuss why they loss the bid.
This is example of WBS that needed to bring down to lowest level and gives you detailed work which can be based to your project estimate price. This is an example of work breakdown structure
Project Level 1
Control Account Level 3
Work Package Level 4
Contract and Purchase Award
Notify the owner of the project
Signature (very important)
Effectiveness of best practices must apply
Delivery and acceptance of the project
Preventative maintenance requirements to be plan
Why did you select the strategy? Explain.
Time & Material contract is the best strategy to be considered when ACME Development Corporation needed to have software in their company. I believe that the four categories will give an easy negotiation. However the owner is giving high risks and contractor is the most secure way to the in using this type of contract. These are the following:
Maximum labor hours
Were all of the other options inadequate, or was it a difficult selection? Explain and why?
According to Kerzner (2013) fixed price contracts involves setting a fixed total price for a defined product, services, or result to be provided. Fixed price maybe incorporate financial incentives for achieving or exceeding selected project objectives like schedule delivery dates, technical performance but sometimes it depends on type of project you have.
Cost plus fee is an adequate to use the ACME project because has high cost, no financial incentives and excessive design changes. Design changes are changing of specs, and project price.
Fixed price/ lump sum is an adequate to use in estimating the ACME project because requires exact knowledge if wanted before contract award, requires substantial time and cost to develop specs and delay to 3-4 months.
What barriers will need to be overcome when implementing the selected procurement strategy? Why?
Change request/ specs
Delaying of materials needed to the job.
Performance control like inspection, acceptance, breach of contract
Lack of training
Lack of communication
Solve critical path issues
How do you plan to overcome these barriers?
Creating project management office (PMO)
Proper channeling and communication.
Understand the hourly rate cost, selection costs of materials, transition cost and management cost
Identify the procurement risks
Campbell, G.M. (2014).Determining what kind of contact to use. New York: New York. Penguin Group (INC.)
Carne, D. (2014). How to understand time & Material Contract with federal contracting. Retrieved from: https://www.ehow.com
PMI (2013). A Guide to the project management body of knowledge (PMBOK Guide). 5th Edition, Pennsylvania: Project Management Institute, Inc.
Kerzner, H. (2013). Project Management a system approach to planning, scheduling and controlling. 11th Edition, New Jersey:
John Wiley & Sons, Inc.
MUSE (2014). Project Procurement. Retrieved from:
Northcraft, T. (2014). Project Management Processes in Organization. Retrieved from: https:// www.ctuonline.com
Rodrigues, J. (2014). Time and Material Contract. Retrieved from:
Verzuh, E. (2012). The fast forward MBA in Project Management. Hoboken, New Jersey: John Wiley &Son Inc.
Project Manager should do his assignment before going out to discuss business to other companies. Hiring a complete packages to a contractors is the cheapest way to work in the project. According to PMBOK (2013) conducting project procurement management includes the process necessary to purchase a service or product. For example the ACME Development Corporation needed to have software for their company. Project Manager should have search who gives better service in the area and it is easiest way to find out is to google and asking them a request for proposal and request for invitation. Establish requirements for giving proposal, this includes licensed, insured and bonded.
I believe requiring to have business license, years of operation is the most important things that you should ask to the contractors. Making sure is insured company of 5 million, if the project requires workers more that 10 people, I think I would say to get more insurance. Using website companies are effective to write them along your intention, it is like newspaper to invite for bidding.
According to MUSE (2014) work breakdown structure takes a daunting project and breakdown into manageable tasks, this is work package with summary task. Therefore hiring technician/contractor to install software in the company will be beneficial to the company because it gives saving savvy. I believe my strategy will work because I used it but the thing is to get the customer is the main priority to have income. For buyer, priority is to get right contractor.
Fixed price contract is a set of price that includes materials and labor. However the owner will be more attentive to look all the work done in a day. Best practices for project manager is to make WBS is part of the requirements. This WBS must be detailed and good tools to evaluate the bid(Verzuh, pg. 148).
Fixed price with target is the amount of the whole project and uses of fixed-price incentive firm target contract. This FPIC is the negotiated price between the owner and the contractor (PMBOK, 2013). This means contractor will give financial incentive to work and achieve quality work in a certain date. Let say agreed date is to finish this coming December 2014, and at an early date (3rd week of November) is finish the project. So the project is done early. The contractor is giving to them with incentive fees because they finish early with acceptable quality workmanship.
Fixed price at cost is a contract involves payment to the seller for legitimate actual cost of completed work. I think this is good for paying small job just like renovating kitchen only and you can give this how much cost in all the materials and labor.
Time & Materials is a combination of the type of contract arrangement that contains aspect of both cost reimbursable and fixed price contract. According to Carnes (2014) Project Manager uses this contract to includes hourly rate pay, travel incentives, living expenses and material used in the job. This arrangement presents the highest risk for the owner and the most secure way for the contractor. Contractor is vey meticulous on time to finish the project because it is a part of the contract.
According to Selecta, Inc. (2014) there are nine process of selecting contractors and I believe could be succeed in this way of requesting a bid, contract creation of the company, negotiation, approval, execution, obligation of management, amendments, audit and reporting and renewal. These are steps to give my strategies which make the project smooth operation. Requesting for invitation or requesting for proposal to bid within the vicinity of the areas you live in. Do not get any company that their offices is far away to the ACME Development Corporation because you need to considered commuting time and may possibly have call and sick employees. Request of proposal includes detailed WBS so that contractors are willing to come and talk to you and willing to explain their price quote or services they have. These are the following:
1. Removing the software
1.1. Remove old software
1.2. Detach all the hardware
1.3. Remove existing cables and runways
2. Requirements for installing new software
2.1. Protection of old documents
2.2. Cleaning the data software
2.3. Configuring the new software
2.4. Spyware protection
3. Educating employees to use the software
3.1. two months training for ACME workers
4. Maintenance of the software
4.1. once a month
4.2. 24 hours customer services
The overall life cycle of the project is 6 months with 2 phases passes through from its initiation to closure. Non stop working except days off. It will give special attention to executing the job and critical path issues. The best application will be delegating workers and teach them to do, if the workers ask for help. As a project manager should always check your scheduling time in order to have maintain credibility of working the right time to finish. However requirements is needed to procure software protection and using on the cloud. Protection for stealing private identification is theft serious offense, so I would required to have one. Train all the workers to use the software. I would mention about using the package in order to have save the company. Technician with at least five years experiences in the job would be asked for working the project. Interview the project manager about his style of managing his project.
These are simple tests to remember in selecting contractors. I believe it will have peace of mind with minimum of risk threats. I discuss the WBS because that will be the keys for getting correct bidding price of the project. Talk straight to the contractors and give a detailed price with all the materials and how many workers will be taking over the job. Give a simple explanation you like your project and then they will understand and picture what you want.
This is example of WBS according to their level and at the bottom is the main work packages where everyone could do their tasks. Using WBS is good to estimate how many hours and tasks that needed to do. Another way to judge the lowest level of activity you should accommodate in your WBS is to consider budget or time criteria. You should consider that time will be finishing is 50% done and 100% completed.
In my experience, WBS is serves as main level of estimating how much input in the job, how many hours to do the work, and clear goal if you know what you doing.
Project Manager should have work with the procurement department if you’re company providing office or project management office (PMO), this will help to get estimate your needs.
According to Campbell (2014) be aware of the uphill task of fighting with your organization’s procurement personnel to place an order. There are workers who always testing you and pressure you, but is ok when your not satisfied to them and project will be delayed. Explain to them that you need this material for this day and they might understand you. Keep track all your date and ending task for documented purposes. Notify your President, financial department that you had select the contractors and sometime you need to sit down to the major stakeholders and tell them you find a contractor. Tell about your terms and condition and contractor bid price. Contract or purchase award is a job for President to approve or not. If he approves the bid price, it will start procuring the project.
Preventative maintenance of software after they installed and ask about how often they come for maintenance.
I believe using time and material contract for configuring software in the ACME Development Corporation is appropriate to use. The definition itself for time and material are included for estimating. Both fixed price and reimbursable contract are combined in this type of contract. Therefore consultants and IT professional services use these contracts for doing things.
According to Campbell (2014) a fixed-price contract given to IT technician and consultant because you negotiated fixed rates that you will pay for services of different workers. It is fixed rate pay. Most of the jobs are in the military projects and hired workers outside and they pay for higher rate which is part of the contract.
Material mark-up is included in the purchased materials like 15% or 35% will add to your material (Rodrigues, 2014). For example I bought $1,000 worth of 12 AWG wire for the kitchen renovation and I need to add this 15% to the material for handling fees. Therefore it will come out of $150 fees that will add his material fees and transaction fees, $1,150.
Not-to-exceed is a of price that you may not to exceed of more than $5,000 in a job. Let say you maximum cap of $5,000 to get this job in renovating kitchen, however you need to follow the owners preferences of materials but you need to spend up to $5,000 only for this job.
Maximum labor hours has been established to the contract so that it will limit the spending time and costs of the project.
According to Kerzner(2013) cost-plus fee is type of contract that includes direct costs, indirect costs or overhead costs and risks are basically covered for the fees. This type of contract is usually manufacturing companies or hotel companies are using this type of contract. Not for It job this type of contract.
According to Rodrigues (2014) Direct costs are materials, supplies, equipment and professional consultants being contracted by the general contractor. Overhead costs are insurance fees, office rent, office supplies, communication expenses, mileage, drawing printing or reproduction. Fees are related to fixed percentage based on labor costs directly to associated with the work.
According to Kerzner (2013)Fixed price or lump sum contracts involve set of total prices for a products or services. Incorporate financial incentives for achieve objectives like schedule delivery dates, technical performance but sometimes it depends on type of project you have. According to Rodrigues (2014) reducing design and administrative cost will apply and he stresses that the contract is submitting a job which is minimal risk is perfect to this contract.
According to Kerzner (2013) best way to understand and intent of each work package is to use WBS and a brief description of each element, name of the person or cost center responsible for the elements such as responsibility assignment matrix milestones and final deliverable. These will help to make your project succeed. Clear work breakdown structure can offer you to see the most tasks and define them how much work to be done and how many hours to finish.
Change specification of the project is done through approval consent because you need to change specification of the whole project. If the specification changes that is money, therefore in configuring software and you need to change the specs will not easy to approve . It has to go to the President of the company and then approve it. Delaying materials is another risk to considered because it will affect scheduling workers. For example 12 AWG needed to wiring up in the kitchen but no more available materials to use. Project Manager should get another task in order not to waste time in making the project.
Training workers is extremely important especially in construction job, this will have the opportunity to learn by the workers how they effective use in their trade. Electrician and plumber are one of the examples that needed to get renewed their license. Acceptance of the contract is one of the document that highly agreed to work on the project. Actually the definition of a contract is a mutually binding agreement that obligates the seller to provide the specified product or service or result and obligate the buyers to pay it (PMBOK, 2013). This is form of communication that needed to pay attention of the procurement manager and the project manager.
According to Verzuh (2012) risk strategies should have someone qualified skilled person responsible for every risk issues and rank every risk by severity and probability. We need to prioritize the issues on threats. Project Manager should rank from top problems to the least problems. Keep to the most important risk to the top of the list, so that you will not ignore. For example subcontracting project will reduce control the project and less expensive of using skilled electricians. This is top priority to work on especially when there are no enough electricians.
For example in configuring software at the ACME Development Company will expect that end users are going to complaint because it is new from them to use. Best application that project manager will use is set a training for qualified persons to lead the whole operation of the software.
The PMO maintains a repository on the company’s shared drive which contains standard project management and procurement documentation that will be used for this project. The following standard documents will be used for project procurement activities in the future events. I believe that proper channeling in this event of project will have to get clear message to the upper management and project manager.
According to PMBOK (2013) Project Management Office will hold most of the documents like control account. This control account is scope, budget, actual cost and schedule are integrated and compared to earned value for performance measurement. For example budget and schedule are integrating usually because using this process will help lower down the costs of the project.
Understand the employees rate, selection costs of the vendors when using their services, for example of installing the software will end to expensive project because you don’t pay attention on every account of direct costs and indirect costs.
Identifying the risk for selecting contractors and their terms and conditions is the most important. Once they hire them they will give 100% for the first week of the job but in the second week of the job they will give a shifty work.
imes it depends on type of project you have. According to Rodrigues (2014) reducing design and administrative cost will apply and he stresses that the contract is submitting a job which is minimal risk is perfect to this contract.
Identifying the risk for selecting contractors and their terms